It’s been a busy Q1 2022 and we have had a number of inbounds from various entrepreneurs asking us about whether it’s the right “timing” to sell. Well that’s a much broader question than it appears. We typically tackle it in two parts – 1) what’s the best time of year and is there market appetite (external readiness) and 2) are you, as the entrepreneur, ready to sell (internal readiness).
On the first point of external readiness, we follow a few general guideposts. First, we like to launch our processes in January through April or Sept and Oct. As we as a society adapt more and more to working from home (even prior to COVID) and home/vacation time blurs, this has been less of an issue than it was say 20 years ago, but deal making requires some momentum and its hard to kick off and maintain a competitive process in the summer months when buyers and sellers are making vacation plans and during the winter holiday season for the same reason. We also find that strategic buyers “have budget” in the first half of the year to do deals and are willing to look at deals in the fall when internal pressures mount to “show results” before year end. Private equity buyers on the other hand are often calling us in the summer months just to connect and get caught up and are more than willing to look year round, especially in the summer if a deal is exclusive to them.
More broadly, we were asked a lot of questions about whether “the market” is ready. Often these questions arise from someone following the TSX or S&P and hearing it’s a bull or bear market. We advise to ignore this generally, especially in the mid-market space. What’s more important is your local geography and industry and how it has been performing (and is forecasted to perform). A good example of this has been the Western Canadian oilfield services market over the past 5 years. The broad market was strong with the TSX up ~40% in that timeframe and the S&P up ~95%, but the demand for western Canadian oil field services companies (both private and public) was very weak as slowing oil and gas demand and regulatory uncertainty around pipeline and major project development weighed on the minds of buyers. Public oil field services companies were down ~50%+ in that same time frame (depending on the size, type of service and debt burden) and both strategic and PE buyers were just not as interested in making acquisitions in the space. That has rebounded in recent months, but certainly not back to the glory days of the late 2000’s. That being said – any good profitable business will find a buyer, it just takes time and a bit of creativity.
The second point we highlight was internal readiness. As corporate year ends are completed and tax filings made, the spring is the time when we are the busiest fielding inquiries to sell. After we discuss the above market points, we always ask the entrepreneur a few questions about their situation.
- Why are they making the call to us? Is there a reason they are thinking about it (health challenge with the owner, debt challenge with the business, retirement planning, general curiosity, etc)?
- Have they been involved in a sale process before and what were their experiences with it (we use this to gauge their general knowledge about the process, timing, roles and expectations)
- The status of their business
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- What are the products/services its providing?
- Is it currently profitable and growing/contracting?
- What does the balance sheet, debt situation look like?
- Who are the owners and how active are they in the business?
- How are your client doing? Are they growing and profitable or is the market stagnating?
- Is it an asset heavy business; what is the annual capital required for replacement/repair?
- Do you own or rent your office/shop space?
- Is it heavily reliant on the owner as operator, how strong is the team around you?
- Who does your accounting (both internal and external)
After getting a sense of the business from the questions above, we will provide owners with a no BS assessment of what we think the broad market prospects are for the business, a high-level sense of market appetite and our recommendations on potential timing. If interested, we will do a deeper dive into the operations of the business and make recommendations as to what things a business owner can do to improve the marketability / value of their business in the next 6-12 months (if there is no immediate time pressure to sell in the short term) and provide a timeline for launch. A typical sales process can take anywhere from 3 months to over a year, but each situation is different, and we provide tailored advice to meet our clients goals and expectations.
We would love to hear your story – please feel free to contact us anytime (we are good with evenings and weekend chats).